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The HOPE for Homeowners Act of 2008 (also known as H4H) was recently created by Congress to help Americans that are at risk of defaulting on their mortgages and / or facing foreclosure.  This H4H loan program is an additional mortgage option designed to keep borrowers in their homes by providing the borrower a way to refinance into a more affordable, sustainable loan.

It is estimated that up to 400,000 US homeowners may avoid foreclosure through the H4H loan program over the next three years. If you, like many homeowners, are currently having trouble making your mortgage payments, HOPE for Homeowners may be the answer you have been searching for allowing you to refinance to a new 30 year fixed rate loan with lower payments than you are currently struggling with.

How the H4H Loan Program Works

There are 4 ways that a troubled homeowner can look into participating in the HOPE for Homeowners Loan Program:

1.       Homeowners may contact their current lender or select a new lender to find out if they are eligible and how they can qualify for this program.
 

2.       Loan Servicers working with distressed homeowners may determine that the best solution for avoiding foreclosure is a Hope For Homeowners refinance loan.
 

3.       Originating lenders seeking options to refinance potential customers out from a higher cost loan and / or willing to work with loan servicers to help the troubled homeowner.
 

4.       Loan Counselors who are working with distressed homeowners and their lenders to arrive at a mutually agreeable resolution to stop or avoid foreclosure.
 

The primary method that homeowners will most likely initially participate in this program is through communications with the servicing lender on their existing mortgage.  It is also anticipated that FHA approved lenders who have an underwriting component to their mortgage operations will partner with those that do not have one to provide such services.

The Process:

Step One:  Cost / Benefit Analysis
Lender considerations: 

Given their financial responsibilities and fiduciary obligations, lenders will evaluate their portfolio and carry out cost benefit analysis to figure out the feasibility of offering the H4H program to homeowners that need it. 

Affordability vs. value: 

Lenders will take losses on the spread between the existing amount owed and the new H4H loan, which is re-set at 90% of the appraised value of the home.  The lender may also provide the homeowner with a more affordable monthly mortgage payment via loan modification instead of taking the loss due to declining property value.

 

Borrower qualification: 

A Lender will decide if the Hope for Homeowners program is a feasible and applicable option for loss mitigation will evaluate the homeowner’s probability of qualifying for the H4H program by analyzing the following:

·         The current / existing mortgage was originated on or before January 1st, 2008.

·         The existing mortgage payments as of March 1, 2008 are greater than 31% of the homeowner’s gross monthly income.

·         The borrower did not intentionally default.

·         The borrower does own other residential real estate.

·         The borrower has not been convicted of Federal or State fraud in the last 10 years.

·         The borrower did not falsify any information to obtain the original mortgage that is being refinanced to the Hope For Homeowners mortgage.

Homeowner / Borrower considerations:

The lender will explain and disclose all of the benefits of the program to the homeowner including:

1. The ability to retain ownership of the home.
2. The lower, more affordable mortgage payments based on the current appraised value of the home.
3. The 10% equity that is a result of resetting the loan balance at 90% of current appraised value.

The lender will also explain and disclose the costs of the program to the homeowner including:

1. The 3% up-front mortgage insurance premium as well as the 1.5% annual premium on the loan.
2. Appreciation and Equity sharing with the Federal Government (click here for examples)
3. The fact that new junior liens against the property (unless they are directly related to property maintenance) are prohibited.

Step Two:  Borrower and Lien-Holder Negotiation

If the lender that is refinancing the mortgage doesn’t hold the senior mortgage lien, they must obtain an agreement from the existing lien holder to relinquish any prepayment penalty and / or default fees on the current loan and take the loan proceeds from the new Hope for Homeowners loan as payment in full.  The loan amount, which includes the 3 percent UFMIP, for the new Hope for Homeowners loan can not exceed 90% of the property’s current value as dictated by a recent appraisal. The lender will also have any existing subordinate mortgage lien holders to remove all subordinate liens on the homeowner’s property.  To persuade subordinate lien holders to take part in such negotiation processes and release existing liens, the FHA has the authority to share the future appreciation entitlement of the home with them.

Step Three:  The H4H Mortgage Origination Process

v       The lender will use the guidelines established under the terms of the H4H unique statutory requirements to establish qualification of the homeowner to ensure the homeowner has the capacity for making the new payment on the Hope For Homeowners mortgage on schedule and in a timely manner.

v       As dictated by the instructions provided by FHA, when the loan is underwritten, the lender shall calculate the future appreciation interest amount for any subordinate lien holder that may exist.

v       At the time of settlement, any subordinate lien holders shall get a certificate that proves that their interest in the property is an obligation backed by HUD and with payment being a condition of the appreciation value of HUD’s share of the property.

Following the loan’s funding, in addition to the note and the typical security instrument for the first mortgage, the lender shall record a SEM (shared equity note and mortgage) and a (SAM) shared appreciation note and mortgage.  The servicing on these mortgages will be through the Federal Hosing Administration.  The lender will also attempt to obtain insurance on the new mortgage from the FHA, certifying that the processes of  origination, underwriting and closing were carried out according to Hope For Homeowners program guidelines.

Step Four:  Fulfilling Hope For Homeowners Mortgage Obligations

Sale of H4H Loan Property

When the property sells, the homeowner is to use the proceeds from the sale to pay off the Hope 4 Homeowners mortgage and also to pay off the shared appreciation and shared equity mortgages.

The Federal Housing Administration will give instructions to the settlement agents concerning subordinate lien holders that are entitled to a portion of appreciation on the home.  The highest priority lien holder will be paid up to the full dollar amount of its interest.  This interest is not to exceed the amount of available appreciation.  This process continues in order of priority until all of the prior lien holders are paid or the amount of the available appreciation is depleted.  Finally, all of the remaining appreciation is remitted to the  Federal Housing Administration.

In a situation where the homeowner fails to make the initial payment on their new Hope For Homeowners mortgage, the Hope for Homeowners statute prevents the FHA from paying claim benefits to anyone holding the mortgage.

At the time of writing this article, it has been announced that the Hope for Homeowners Loan Program is effective from October 1, 2008 to September 30, 2011

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